Dutch Central Bank provides clarity on holding company exemption for bonus cap after Dutch Minister of Finance comments in the press.
What is this about?
On 08 February 2015 a controversial bonus cap limiting variable remuneration to 20% of the fixed remuneration (see also our previous elexica article: Entry into force of Act containing controversial bonus cap of 20%), entered into force in the Dutch Financial Supervision Act (the Act). The bonus cap has proven to be a drawback for financial firms to set up a business in the Netherlands post Brexit.
On 03 March 2017, the Dutch Central Bank (DCB) published a Q&A that provides clarity on the interpretation of the exemption for holding companies to the 20% bonus cap set out in the Act (available in Dutch). Prior to DCB’s explanation, it was unclear whether UK financial firms that envisage setting up an entity in the Netherlands post Brexit, were able to apply this exemption.
Which firms should be aware?
UK financial firms considering setting up a hub in the Netherlands after Brexit.
What should they know?
The Dutch remuneration rules (including the bonus cap) apply to all financial firms regulated under Dutch law and which have their statutory seat in the Netherlands. The majority of the remuneration rules (including the bonus cap) applies to all subsidiaries of those financial firms, regardless of whether they are located both inside or outside the Netherlands.
20% bonus cap?
The bonus cap is a maximum variable remuneration component for persons of 20% of the fixed remuneration that person received in that year.
The bonus cap applies to:
- Identified staff (as under CRD IV), but also all persons performing activities under the responsibility of the financial firm (or one of its group companies).
- Branch offices in the Netherlands of financial firms with their seat in another EU member state. However, EU banks and EU investment firms (as defined under CRD IV) do not fall under the scope of this bonus cap. In that event, remuneration rules (and caps) of their home country apply. As such, the bonus cap currently is not an issue for UK banks with a (branch office) presence in the Netherlands.
Holding/parent company exemption
For staff working under the responsibility of the holding/ (ultimate) parent company the 20% bonus cap does not apply, but rather a 100% bonus cap (or possibly 200% with shareholder approval pursuant to CRD IV), provided that at least 75% of all staff within the group of companies has predominantly worked (ie at least 50% of the time) outside the Netherlands during at least three (not necessarily consecutive) out of the last five consecutive years. This exemption applies to staff of at the parent company only: it does not, in principle, apply to staff of the subsidiaries.
More clarity by DCB
Up to now, it was unclear whether UK firms with an ultimate parent company in another jurisdiction than the Netherlands could benefit from this exemption. DCB now provides clarity on the following:
- The Dutch holding/parent company does not need to be the ultimate parent company of the worldwide group. It is sufficient if the holding/ parent company is the ultimate parent company within the European Economic Area (EEA).
- It is not necessary that the Dutch holding/parent company holds a licence pursuant to the Dutch Financial Supervision Act.
- Firms can benefit from the exemption if within the period of five consecutive years prior to incorporation of the Dutch holding/parent company, at least 75% of all staff employed by it has worked outside the Netherlands for at least three years. The three year period does not commence after the incorporation of the Dutch holding/parent company, ie prior years are of relevance.
When will this apply?
These rules already apply, but the recent guidance by DCB put them in a different light.
Any further thoughts?
It appears that the Dutch are realising that the stringent Dutch bonus cap could constitute a hurdle for positioning the Netherlands as a preferred jurisdiction.
Other exemptions are also available for UK firms considering the Netherlands for establishing their EU-hub after Brexit:
- a cap of 200% for staff predominantly (at least 50% of their time) physically working outside the EEA, subject to shareholder approval and the procedure as determined in CRD IV, and
- a cap of 100% is for staff predominantly (at least 50% of their time) physically working outside the Netherlands but within the EEA.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.